Government Must Develop Blueprint for Investment in Rail
Rather than create an ad hoc national rail policy in the wake of Tranz Rail offloading its passenger services, the Government should create a long term policy that will serve the public well into the future.
Some, like ACT's Richard Prebble, would argue that no policy is needed at all and that the market will determine the outcome of New Zealand's passenger rail services. This would be a valid argument if a perfect market for passenger rail services existed, but the fact is it doesn't - a monopoly would be a better description for the rail market.
The "market" is defective because Tranz Rail singularly has possession of the trains, tracks and a lease of the land corridors that the tracks lie on, so no competitive tension exists at all. In a broader context rail also misses out as it has not enjoyed the same levels of Government capital expenditure in recent years as our roads have.
Furthermore the Government is now being forced to acknowledge that rail has strategic, environmental and social value which is not recognised in the current market structure.
Strategically, rail should be retained as a long term safeguard against the possible collapse of other forms of transport. With some sources indicating that global fuel supplies will run out within our children's lifetime, or at least become prohibitively expensive, it would be prudent to have less reliance on aviation and road based transport.
Environmentally, rail locomotives are more efficient than trucks which burn four times as much diesel hauling the same load.
Socially, locals and tourists alike should have an alternative to being forced into relatively uncomfortable cars or buses, with the dangers that are inherent when people drive towards each other at potential collision speeds of up to 200 km/h.
The Government's current policy involves paying a subsidy to Australia's West Coast Railway for services that, at least under Tranz Rail management, are deemed unprofitable. At the very least the Government should be proposing an equity share so that taxpayers will benefit from any future profitability. And why choose the West Coast Railway to operate the service? New Zealand's Taieri Gorge Rail Trust is an example of a local organisation able to make a profit from the provision of rail services - there are bound to be others equally as capable.
The possibility of turning a profit for some of the lines in question is very real, particularly the Geyserland Express from Auckland to Rotorua. It could be as simple as changing the schedule from the current one return trip a day so that day trips are possible, and advertising the service.
But instead of a policy of allocating arbitrary subsidies to overseas rail companies, the Government should be developing a blueprint from which to base further public and private investment in the railways.
At the very least it should be looking at regaining ownership of Tranz Rail's track, for a number of reasons.
The first is for control. The Government could create competitive tension by offering contracts to provide passenger services, or it could form a joint venture with a private operator. Currently Tranz Rail could, and still might, pull up the steel track that it owns and sell it for scrap. Or it could sell it to a company with a worse safety record than its own.
Safety is also the most important argument for Government ownership of the track. Tranz Rail has become the de facto equivalent of Britain's RailTrack, but without any accompanying safety regulations. There is strong evidence that the combination of Tranz Rail's desire to maximise profit and managerial negligence has been a significant factor in a spate of rail accidents in recent years.
Rail safety needs to be in the hands of the Government. If it isn't then areas of concern such as the 735 uncontrolled level crossings on the network stand no chance of improvement. With the possible introduction of new operators such as West Coast Rail the areas of responsibility for safety could become blurred further.
An additional spin-off in regaining control of the track would be the resolution of another rail problem the Government currently owns - that of acquiring access to the Auckland rail network for the provision of passenger services. Until the Government decided to intervene six months ago, plans were well advanced for Auckland ratepayers and Transfund to pay $112m to Tranz Rail for the access to and associated maintenance of Auckland's rail network. Now the Government has the opportunity to address this issue and the issue of the continuation of rail passenger services at a national level.
Annoyingly, had it intervened earlier, the Government could have saved Auckland rate payers over $5 million which was spent by the local bodies on consultants while attempting to get the Auckland rail deal off the ground.
So how can the Government regain ownership of the railways, and how much will it cost?
Under the New Zealand Railways Corporation Restructuring Act 1990, the Government has the power to grant a railway operator any leases or rights of any kind in respect of railway assets owned by the Crown. This gave rise to the eventual sale to New Zealand Rail and subsequent on-sale to Tranz Rail of railway rolling stock, track and buildings. The only asset now administered by the New Zealand Railways Corporation is the rail corridor land for which a lease was assigned solely to Tranz Rail for the price of one dollar in 1993.
The reason for the peppercorn rental was that Tranz Rail faced a number of responsibilities under the terms of sale. While the 1993 sale agreement was and still is "commercially confidential", various articles and media reports indicate the sale agreement contains a clause whereby if Tranz Rail abandons any rail service, the Government has the right to buy track and fixtures at a "fair market price."
If ever there was a time for the Government to invoke this clause, then surely this is it. For West Coast Rail this raises the interesting point that Tranz Rail may not actually be entitled to sell its unwanted passenger services without the Government having the first right of refusal. For the benefit of West Coast Rail, the shareholders of Tranz Rail and the general public, the Government needs to clarify whether or not it is interested in acquiring the track.
How much is a fair market price? There are currently just over 120 million Tranz Rail shares on issue. Therefore at its current share price of around $3.80, Tranz Rail - including rolling stock, track, profitable freight services, the Cook Strait ferries and other assets - is valued at about $456m. The Government could probably therefore acquire a 51% interest in Tranz Rail for $231m plus an ownership premium.
Alternatively it could bid for ownership of the lines and ancillary assets alone, which could have a much smaller price tag considering the costs of maintenance and the need for additional investment to bring the current decrepit railway stations and other passenger facilities up to standard.
Another factor in the Government's favour is that current Tranz Rail shareholders, including major shareholder Wisconsin Central and the investment vehicle of Fay Richwhite, are actively looking to sell.
Looking to the future the Government needs to look beyond the current poor services currently on offer, to a vision where travel by rail is faster, more convenient and better value than travel by road. This vision has been achieved in other regions of the world - from as close as Queensland where trains can travel at up to 160 km/h on tracks of the same gauge as New Zealand's, to Europe where train travel is an essential service.
This vision cannot be achieved by a reluctant Government merely reacting to events in the apparent hope that the whole issue will go away. The Government will undoubtedly by forced back into the rail business in some form or other - it may as well do it properly.